BEIJING — China still leads the sourcing pack — but mass-market and fast-fashion players are being forced to look elsewhere.
This story first appeared in the December 2, 2014 issue of WWD. Subscribe Today.
Executives from sourcing agents and Western apparel and accessories companies said while firms are increasingly looking to source from other Asian nations such as Myanmar, Vietnam, Bangladesh and Cambodia, China still bests the competition due to its well-established supply chain and increasingly higher-quality production. But they also noted that China mostly works now only for the production of brands that are more expensive. For mass market or fast fashion, sourcing from lower-cost countries is increasingly becoming a must.
“China would still have to be the country of choice [to produce higher-quality goods],” said Munir Mashooqullah, president of sourcing firm Synergies Worldwide. “The cost of working in China is still affordable and the advantages of working in China are more conducive if you have better margins in Europe and America on branded goods.”
Textile and apparel imports from China to the U.S. rose 5.9 percent to 28 billion SME, valued at $41.7 billion, for the year ending Sept. 30.
Mashooqullah said if brands are looking for “prices that were available four years ago” in China, they will have to search further inland where more factories are being constructed as part of a government effort to build up economies beyond coastal areas. Yet there are drawbacks, he said. Infrastructure is not completely in place yet, quality is hard to come by and freight costs squeeze margins.
“You have to do more work, more due diligence,” Mashooqullah said. “You have to have people on the ground to work with those factories.”
Henry Tan, president and chief executive officer of sourcing giant Luen Thai, said the company is continuing to expand production across Southeast Asia.
“It is our belief that it is far more economic to produce basic orders outside of China,” said Tan, who is based in Hong Kong. “For things with a short lead time or things that are complicated to make, probably production will remain in China for a while.”
However, Tan said the factory tragedies and labor strikes in Bangladesh spurred some brands to move production to other countries, but not necessarily back to China.
Prices are going up in China for a number of reasons. Several years ago, the government outlined a plan for the textile industry to undergo a major technological upgrade so that manufacturers could produce higher-quality products to compete with those made in Europe or other developed markets, and also for Chinese brands to sell better products that would, in turn, fuel domestic consumption.
Rising labor costs are also putting pressure on factories to find ways to widen their margins. China’s monthly wage rate in 2012 was $561, compared to $217 in Vietnam, $123 in Bangladesh and $123 in Cambodia.
According to industry experts, a number of factories, especially in coastal areas, have shuttered their doors because they can no longer afford to operate due to rising costs, the inability to pay back loans and labor shortages.
“For many factories, the cash flow has gotten tight and they are looking to produce better goods,” said Abe Chehebar, ceo of New York-based AHQ-Accessories Headquarters LLC, adding that a number of their Chinese suppliers have opened factories in Cambodia and Vietnam to take advantage of lower costs. This has resulted in longer production times.
“We like to pre-sell what we buy,” Chehebar said, adding that he sees Cambodia coming on as a strong sourcing market behind China. “But retailers are not so open to buying 120 days out. They want to buy 60 days out. It is a little bit of a challenge, but the price difference is definitely an incentive to work in a different way to adapt to this new playing field.”
Chehebar said the biggest incentive for continuing to produce in China is all of the components are vertical, so the speed of design to the production and shipping is an asset, as well as makers’ overall knowledge.
“They have been doing it for a long time,” he said. “The higher-end designer brands can be produced in China without a problem because they sell at a higher price point, but when sourcing for Wal-Mart or Target, you have to be creative in terms of how you source those products.”
Arthur Grayer, senior vice president of sales and merchandise for Bijoux International, which makes the Eastsport backpack line, said while the company still has all of its production in China, it is facing “challenges” there, especially during peak seasons. Factories struggle to produce higher quantities mainly due to labor shortages, Grayer said.
“We have to get more creative. Try to plan ahead,” he said, adding that the company is beginning to test factories elsewhere in the region.
While labor issues have been more prominent in other sectors, such as electronics production, the apparel industry has not been immune. Laborers are increasingly demanding more rights, including retirement and other benefits. Earlier this year, thousands of workers at one of the world’s largest shoe-making factories in the southern province of Guangdong went on strike over benefits, impacting production schedules for major brands, such as Adidas and Nike.
“Labor unrest is definitely a concern,” Chehebar of AHQ-Accessories Headquarters, said. “The relationship between factory and employee has dramatically changed.
“Sourcing is a nonstop puzzle,” he added. “It is a never-ending road. There is always something you are learning. Something you are finding out about something you see as an opportunity. It will never be that once you reach a certain destination, you are done.”
Tan of Luen Thai said labor unrest is not a primary concern; rather, it’s labor availability. He projected that by 2016, China will have negative growth in the workforce as more people retire, fewer young people opt to work in factories and China’s overall population growth starts to slow.
“The availability of the Chinese workforce will be an important issue,” he added.